Stocks started the week on a down note, and the futures are suggesting a mixed open at the start of today’s session. In overnight trading, stocks in Asia were also mixed. Meanwhile, the major European exchanges are all showing gains. Elsewhere, oil prices have moved higher, with West Texas Intermediate up about 0.7%, to around $73.30 a barrel.
Although corporate earnings season remains in full swing, yesterday’s market decline served as a reminder of the old axiom “don’t fight the Fed”. Specifically, Federal Reserve Chair Jerome Powell indicated in an interview that a rate cut at the central bank’s next meeting in March is unlikely. Mr. Powell stated that with the economy in strong shape, it would be prudent “…to just give it some time….” and wait for the data to confirm that inflation can sustainably be lowered to around 2%. He also pointed to weakening job growth as a possible catalyst to rate cuts. However, last week’s employment report showed that additions continue to trend above market expectations. The U.S. added 353,000 positions in January, well above the consensus estimate of 185,000 and the 333,000 reported the month before.
At the start of the year, market forecasters were saying there was a 60% chance of a quarter-point cut in the Fed Funds rate as early as March. But after Mr. Powell’s latest comments, analysts now don’t expect a reduction until June, at the earliest. However, plans still call for at least three reductions in the lead bank’s overnight lending rate in 2024.
The Institute for Supply Management’s (ISM) latest report on the non-manufacturing (services) sector further dampened investors’ hopes yesterday. The ISM’s Purchasing Managers Index (PMI) for January came in at 53.4%. This was above December’s level of 50.5% and above the Wall Street consensus of around 52%. This marked the 13th straight month of growth for the sector, which has expanded in 43 of the last 44 months. (Readings above 50 indicate expansion, while those below 50 denote contraction.)
The rest of the week is rather light on key economic reports. On Thursday, the Department of Labor will issue its report on initial jobless claims, with analysts calling for a dip to 219,000, down from last week’s tally of 224,000.
Summing up Monday’s moves for the major indexes, the Dow Jones Industrials fell 274 points, or 0.7%, the S&P 500 lost 15 points (0.3%), and the tech-heavy NASDAQ shed 32 points (0.2%). – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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